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Crafting vs. Executing Strategy
Crafting the Strategy
Primarily a market-driven
activity
Successful strategy making
depends on
Business vision
Perceptive analysis of
market conditions and
company capabilities
Attracting and pleasing
customers
Outcompeting rivals
Using company
capabilities to forge a
competitive advantage
Executing the Strategy
Primarily an operations-
driven activity
Successful strategy
execution depends on
Doing a good job of
working through others
Good organizationbuilding
Building competitive
capabilities
Creating a strategysupportive culture
Getting things done and
delivering good results
Implementing a New Strategy
Requires Adept Leadership
Implementing a new strategy
takes adept leadership to
Convincingly communicate
reasons for the new strategy
Overcome pockets of doubt
Secure commitment of concerned parties
Build consensus and enthusiasm
Get all implementation pieces in place and
coordinated
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Goals of the Strategy
Implementing-Executing Process
Unite total organization behind strategy
See that activities are done in
a manner that is conducive to
first-rate strategy execution
Generate commitment so an enthusiastic
crusade emerges to carry out strategy
Fit how organization conducts its
operations to strategy requirements
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Figure 10.1: The Eight Components of Strategy Execution
Figure 10.2: The Three Components of Building an
Organization Capable of Proficient Strategy Execution
Building Core Competencies
and Competitive Capabilities
Crafting the strategy involves
Identifying the desired competencies and
capabilities to build into the strategy to help
achieve a competitive advantage
Good strategy execution requires
Putting desired competencies and
capabilities in place,
Upgrading them as needed, and
Modifying them as market
conditions evolve
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Example: Intel’s Core Competence
Design and mass production
of complex chips
for personal computers
Example: Procter & Gamble’s
Core Competencies
Superb marketing-distribution skills and R&D
capabilities in five core technologies - fats,
oils, skin chemistry, surfactants, emulsifiers
Example: Ciba Specialty
Chemicals Core Competence
Technology-based competencies allowing it to
quickly manufacture products for customers
wanting customized products relating to coloration,
brightening and whitening, water treatment and
paper processing, freshness, and cleaning
Example: Disney’s Core Competencies
Theme park operation
Family entertainment
Example: Toyota’s Core Competence
Legendary “production system” giving it
the capability to produce high-quality
vehicles at relatively low costs
Three-Stage Process of Developing
Competencies and Capabilities
1. First develop ability to do something
2. Build experience and gradually
transform the ability into a
core competence and
proven capability
3. Continue to refine and polish the
competence/capability, striving to perform
the activity better than rivals, thereby
turning the core competence into a
distinctive competence and providing a
path to competitive advantage!
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Competitive Advantage Potential
of Competencies and Capabilities
When it is difficult to outstrategize rivals
with a superior strategy . . .
. . . Best avenue to industry
leadership is to out-compete
rivals with
superior strategy execution!
Building competencies and capabilities
rivals can’t match is one of the
best ways to out-compete them!
Figure 10.3: Structuring the Work Effort to
Promote Successful Strategy Execution
Step 1: Decide Which Value Chain Activities
to Perform Internally and Which to Outsource
Involves deciding which activities are
essential to strategic success
Most strategies entail certain crucial business
processes or activities that must be performed
exceedingly well or in closely coordinated
fashion if the strategy is to be executed with real
proficiency
These processes/activities usually
need to be performed internally
Other activities, such as routine
administrative housekeeping and
some support functions, may be
candidates for outsourcing
Critical
activities
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Step 2: Make Strategy-Critical
Activities the Main Building Blocks
Assign managers of strategy-critical
activities a visible, influential position
Avoid fragmenting responsibility for
strategy-critical activities across many
departments
Provide coordinating linkages
between related work groups
Meld into a valuable
competitive capability
Assign
managers
key roles
Primary
activities
Strategic
relationships
Support
functions
Coordination
Valuable
capability
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Step 3: Determine How Much
Authority to Delegate to Whom
In a centralized structure
Top managers retain authority
for most decisions
In a decentralized structure
Managers and employees are
empowered to make decisions
Trend in most companies
Shift from authoritarian to decentralized
structures stressing empowerment
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Step 4: Provide for Internal
Cross-Unit Coordination
Classic method of coordinating activities
– Have related units report to single
manager
Upper-level managers have clout
to coordinate efforts of their units
Support activities should be
woven into structure to
Maximize performance of primary activities
Contain costs of support activities
Formal reporting relationships often need
to be supplemented to facilitate
coordination
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Step 5: Provide for
Collaboration With Outsiders
Need multiple ties at multiple levels to ensure
Communication
Coordination and control
Find ways to produce collaborative
efforts to enhance firm’s capabilities
and resource strengths
While collaborative relationships
present opportunities, nothing
valuable is realized until the
relationship develops into an engine
for better organizational performance
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Characteristics of
Organizations of the Future
Extensive use of Internet technology
and e-commerce business practices
Fewer barriers between
Change &
Different vertical ranks
Learning
Functions and disciplines
Units in different geographic locations
Company and its suppliers, distributors,
strategic allies, and customers
Capacity for change and rapid learning
Collaborative efforts among people in different
functions and geographic locations
Assembling work teams including more members
dispersed over a wider geographic area
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MARSHALING RESOURCES
BEHIND THE DRIVE FOR GOOD
STRATEGY EXECUTION
ESTABLISH POLICIES AND
PROCEDURES TO FACILITATE
STRATEGY EXECUTION
ADOPTING BEST PRACTICES
AND STRIVING FOR
CONTINUOUS IMPROVEMENT
What Is Total Quality Management?
A philosophy of managing a set of
business practices that emphasizes
Continuous improvement in all phases of
operations
100 percent accuracy in performing activities
Involvement and empowerment
of employees at all levels
Team-based work design
Benchmarking and
Total customer satisfaction
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Popular TQM Approaches
Deming’s
14 Points
Crosby’s 14
Quality Steps
The Juran
Trilogy
Baldridge
Award
Criteria
Six Sigma Quality Control — A Tool
for Promoting Operating Excellence
Six Sigma is a disciplined, statistics-based
system aimed at having not more than 3.4 defects
per million iterations for any business practice
Two approaches to Six Sigma
DMAIC process (Design, Measure,
Analyze, Improve, Control)
An improvement system for existing
processes falling below specification
and needing incremental improvement
A great tool for improving performance
when there are wide variations in how
well an activity is performed
DMADV process (Define, Measure, Analyze,
Design, Verify) or DFSS (Design for Six Sigma)
An improvement system used to develop new
processes or products at Six Sigma quality levels
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Approach of the DMAIC Process
Define
What constitutes a defect?
Measure
Collect data to find out why, how,
and how often the defect occurs
Analyze – Involves
Statistical analysis of the metrics
Identification of a “best practice”
Improve
Implementation of the documented “best
practice”
Control
Employees are trained on the “best practice”
Over time, significant improvement in quality
occurs
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Business Process Reengineering
vs. Total Quality Programs
Reengineering
Aims at quantum gains of
30 to 50% or more
Total quality programs
Stress incremental progress
Techniques are not mutually exclusive
Reengineering – Used to produce a good basic
design yielding dramatic improvements
Total quality programs – Used to perfect
process, gradually improving efficiency and
effectiveness
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INSTALL INFORMATION
AND OPERATING SYSTEMS
Examples of Support Systems
Airlines
On-line reservation system
Accurate and expeditious baggage
handling system
Strict aircraft maintenance program
Examples of Support Systems
Federal Express
Internal communication systems allowing it
to coordinate 70,000 vehicles handling an
average of 5.5 million packages per day
Leading-edge flight operations systems
allow a single controller to direct as many
as 200 of 650-plus aircraft simultaneously
E-business tools for customers
Examples of Support Systems
Otis Elevator
Sophisticated maintenance support system
eBay
Systems have been developed for
real-time monitoring of new listings, bidding
activity, Web site traffic, and page views
TYING REWARDS AND
INCENTIVES TO STRATEGY
EXECUTION
Gaining Commitment: Components
of an Effective Reward System
Monetary Incentives
Non-Monetary Incentives
Base pay increases
Praise
Performance bonuses
Constructive
Profit sharing
plans
Stock options
Retirement packages
Piecework incentives
criticism
Special recognition
More, or less, job security
Stimulating assignments
More, or less,
autonomy
Rapid promotion
Examples: Motivational Practices
Google
Employees are provided with free food,
unlimited ice cream, pool and Ping-Pong tables, and
complimentary massages. Employees are allowed to
spend 20% of their work time on any outside activity.
Lincoln Electric
Rewards productivity by paying for each piece
produced (defects can be traced to worker causing them).
Highest rated workers receive bonuses of as much
110% of their piecework compensation.
Examples: Motivational Practices
JM Family Enterprises
Benefits for employees include: a great lease on new Toyotas,
cruises in the Bahamas on the 172-foot company yacht, office
facility has a heated lap pool, a fitness center, and a free nail
salon, and professionally made take-home dinners.
Wegmans
Employees have flexible schedules and benefits include onsite
fitness centers. Employees from cashiers to butchers to store
managers are all treated equally and viewed as experts in their
jobs. Employees receive 50 hours of formal training per year.
Examples: Motivational Practices
Ukrop’s Super Markets
Stores stay closed on Sunday; company pays out 20% of
pretax profits to employees in the form of quarterly bonuses;
and the company pays the membership tab for employees if
they visit their health club 30 times a quarter.
Nordstrom
Pay salespeople higher than prevailing rates,
plus commission. “Rule #1: Use good judgment in
all situations. There will be no additional rules.”
Examples: Motivational Practices
W. L. Gore
Employees get to choose what project/team they work on;
each team member’s compensation is based on other team
members’ ranking of his/her contribution to the enterprise.
Amgen
Employees get 16 paid holidays, generous
vacation time, tuition reimbursements up to $10,000,
on-site massages, a discounted car wash, and the
convenience of shopping at on-site farmers’ markets.
INSTILLING A STRATEGYSUPPORTIVE CORPORATE
CULTURE
Defining Characteristics
of Corporate Culture
Core values, beliefs, and business principles
Ethical standards
Operating practices and behaviors defining
“how we do things around here”
Approach to people management
“Chemistry” and “personality” permeating
work environment
Oft-told stories illustrating
Company’s values
Business practices
Traditions
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Features of the Corporate
Culture at Wal-Mart
Dedication to customer satisfaction
Zealous pursuit of low costs
Frugal operating practices
Strong work ethic
Ritualistic Saturday morning meetings
Executive commitment to
Visit stores
Listen to customers
Solicit employees’ suggestions
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Features of the Corporate
Culture at General Electric
Hard-driving, results-oriented
atmosphere prevails
All businesses are held to a standard
of being #1 or #2 in their industries as
well as achieving good business results
Extensive cross-business sharing of ideas,
best practices, and learning
Reliance on “workout sessions” to identify,
debate, and resolve “burning issues”
Commitment to Six Sigma Quality
Globalization of the company
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Features of the Corporate
Culture at Nordstrom’s
Deliver exceptional customer service to
customers
Company motto
“Respond to Unreasonable
Customer Requests”
Out-of-the-ordinary customer requests
viewed as opportunities for “heroic” acts
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Where Does Corporate
Culture Come From?
Founder or early leader
Influential individual or work group
Policies, vision, or strategies
Operating approaches
Company’s approach to people
management
Traditions, supervisory practices,
employee attitudes
Organizational politics
Relationships with stakeholders
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Forces Causing Culture to Evolve
New challenges in marketplace
Revolutionary technologies
Shifting internal conditions
Internal crisis
Turnover of top executives
A new CEO who opts to change things
Diversification into new businesses
Expansion into foreign countries
Rapid growth that involves adding many new
employees
Merger with or acquisition of another company
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Types of Corporate Cultures
Strong vs. Weak Cultures
Unhealthy Cultures
High-Performance Cultures
Adaptive Cultures
Hallmarks of Adaptive Cultures
Willingness to accept change and embrace
challenge of introducing new strategies
Risk-taking, experimentation, and
innovation to satisfy stakeholders
Entrepreneurship is
encouraged and rewarded
Funds provided for new products
New ideas openly evaluated
Genuine interest in well-being
of all key constituencies
Proactive approaches to
implement workable solutions
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Culture: Ally or Obstacle
to Strategy Execution?
A company’s culture can contribute to – or
hinder – successful strategy execution
A culture that promotes attitudes and
behaviors that are well-suited to first-rate
strategy execution is a valuable ally in the
strategy execution process
A culture where attitudes
and behaviors impede
good strategy execution is a
huge obstacle to be overcome
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Figure 12.1: Changing a Problem Culture
Symbolic Culture-Changing Actions
Lead by example – Walk the talk
Emphasize frugality
Eliminate executive perks
Require executives to spend time talking
with customers
Ceremonial events to praise people and
teams who “get with the program”
Alter practices identified
as cultural hindrances
Visible awards to honor heroes
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Grounding the Culture in
Core Values and Ethics
A culture based on ethical principles is
vital to long-term strategic success
Ethics programs help make
ethical conduct a way of life
Executives must provide genuine support
of personnel displaying ethical standards
in conducting the company’s business
Value statements serve as a cornerstone for
culture-building
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Approaches to Establishing
Ethical Standards
Formal values statement
and a code of ethics
Word-of-mouth indoctrination and tradition
Annual reports and Websites
Making stakeholders aware of a commitment
to ethical business conduct is attributable to
Greater management understanding of role
these statements play in culture building
Renewed focus on ethical standards
stemming from recent corporate scandals
Growing numbers of consumers who
prefer to patronize ethical companies
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Figure 12.2: The Two Culture-Building Roles of
a Company’s Core Values and Ethical Standards
Establishing a Strategy-Culture Fit in
Multinational and Global Companies
Institute training programs to
Communicate the meaning of core values and
Explain the case for common operating
principles and practices
Create a cultural climate where the norm is to
Adopt best practices
Use common work procedures
Pursue operating excellence
Give local managers
Flexibility to modify people management
approaches or operating styles
Discretion to use different motivational and
compensation incentives to induce personnel to
practice desired behaviors
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Leading the
Strategy-Execution Process